Does Capital Structure, Profitability, and Dividend Policy Improve Stock Prices?

Abstract

Purpose: The aim of this study is to investigate how capital structure, profitability, and dividend policy impact the stock prices of companies in the consumer goods manufacturing industry sector listed on the Indonesia Stock Exchange from 2018 to 2020 Theoretical framework: The theoretical framework is based on agency theory and financial management. It focuses on the relationship between financial structure, profitability, dividend policy, and stock prices. Financial structure is measured by the debt-to-equity ratio, profitability by return on assets, and dividend policy by the dividend payout ratio. The framework highlights the fundamental factors that affect a company's financial performance, which in turn influence its stock price. Design/methodology/approach: The data utilized for this research is quantitative in nature, consisting of financial ratios and approached descriptively. Descriptive statistics and panel data regression analysis were employed for data analysis with the aid of the Eviews 12 Student version application. Findings: The Results of the research indicate that capital structure, profitability, and dividend policy have a simultaneous impact on the closing price of stocks. Partially, the debt-to-equity ratio, which proxies for capital structure, has a significant and negative effect on the stock price. However, return on assets, which proxies for profitability, does not seem to have any influence on the stock price. Moreover, the dividend payout ratio, which proxies for dividend policy, also does not seem to have an impact on the stock price. Research, Practical & Social implications: The findings can be used as a basis for further research on the impact of other financial factors on stock price. Investors can use the results to make investment decisions, such as adjusting their portfolio based on the capital structure and dividend policies of the company. The study contributes to the development of the Indonesian stock market by providing insights for investors, analysts, and companies on the factors that affect the stock price Originality/value: The emphasis on the importance of considering not only financial ratios but also external factors when making investment decisions. It highlights the need for companies to maintain good financial performance and keep their DER ratio under control to maintain investor confidence and ensure financial stability.